Three big professional services firms – EY, KPMG and PwC – are stepping up their efforts to snatch a slice of the M&A market from investment banks – by hiring the banks’ own talent.

EY, KPMG and PwC – are stepping up their efforts

All three firms have made notable appointments in London in recent weeks and more are expected.
Banks are already under pressure on big-ticket deals from boutiques set up by veteran dealmakers. The accountants are now trying to take banks’ share of mid-sized and smaller deals.

Dougald Middleton, EY’s head of lead advisory, said he was looking to double the number of partners in EY’s advisory business – currently at 24 – over the next three to four years. PwC said it would continue investing where it saw opportunity for growth.

Bill Michael, head of financial services at KPMG, said he expected the trend of professional services firms hiring bankers “to continue and accelerate”, adding “we’re still at the infancy of it”.

While bankers moving to professional services firms is not new, the recent movers are more experienced.
Senior switches in the past month include Jamie Heath, a partner at Centerview who joined EY, Simon Hampton, Jefferies’ real estate chief who is now with PwC and Richard Gostling, head of business services at Goldman Sachs, who was hired by KPMG.

Kevin Burrows, head of financial services at PwC, said: “You can see the sorts of hires that we are making. We’re never going to be at the top end of deals, we’re always going to be there for small and medium deals – but there’s a feeling that we can go toe to toe with anybody in that space.”

Nathan Luckas, a partner at recruiter Langbourn Partners, said: “I think there’s certainly more movement away from the leading investment banks into the accountancy firms. If you look at the hires – you can probably say that the quality is higher than in the past. They are now starting to compete head to head with many of the leading boutiques and investment banks, particularly in the upper mid-market.”

Compensation is also a factor. Unlike senior bankers, partners at the firms are paid in cash, with no stock or deferrals. Their total remuneration is comparable to that of a good managing director level banker at a bulge bracket, according to headhunters.

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The average compensation for partners at the big accountancy firms is around £600,000 to £700,000 and can go up to £1 million, according to headhunters. Typically, 60% to 70% of that figure will be a base salary, with the rest paid as a bonus.

At investment banks meanwhile, the base would be closer to £300,000 for managing directors, with a much greater focus on the bonus. In a good year, bonuses can be a multiple of the base, while in other years, no bonus is paid.

Deals above $1 billion remain almost exclusively the terrain of more established investment banks or advisory boutiques. But combined, the accountancy firms have advised on 12.4% of announced UK M&A deals by value in the year to June 6, according to Dealogic – a post-crisis high. The increase is largely driven by EY’s role on a couple of big UK deals, including Vodafone’s acquisition of Ono.

However, a managing director at an independent investment bank dismissed the changes, saying: “It’s an odd move to make unless you’re getting a lot of money.”